The Pros and Cons of Owning a Quadplex

It often seems that when the words “financial investment” are uttered, the topic inevitably tumbles towards that of buying and selling properties with some renovations usually mixed in. However, the benefits of owning and renting out mid-sized properties like quadplexes can’t be denied. From tax benefits to wealth building, the opportunity – when done well – can be a fruitful venture for any investor to take on. But as with many things, there is much strategy and intention that needs to go into taking on this scope of work. After all, a rental property is only as good as its owner who has the time and finances to manage upkeep.

The benefits of owning a quadplex

Tax incentives – Quadplex investors have the potential for tax breaks, including the expenses incurred by the rental units.

Cash flow – If you buy, rehab, and sell a property, you make a profit once. If you buy (possibly rehab) and rent out a property, you’re making a long-term investment that can make you a profit month after month. While it might take money to make money (upkeep and management are not cheap), being the owner of nice units with competitive rent will ensure units fill up and remain occupied.

Financing advantages – Quadplexes are the largest property type that an owner can invest in using a residential property loan(properties that have five units or more often fall into the commercial properties category). They also typically offer lower down payment rates.

Leverage – Investors (borrowers) can put down 20% to 30% of the sale price while financing the rest over a 25–30-year period.

Security – Let’s say you invest in a single-family home that you intend to rent out. The new renters hit hard times and can no longer pay rent. Suddenly, you can no longer make mortgage payments. The reality of troublesome renters or a suddenly vacant property is less of a concern with quadplexes, where the other occupied units can help keep the property afloat, even if one of the units goes sideways.

The downsides of owning a quadplex

Time consuming – The time investment needed to not only find the right property, but then take on and assume property management responsibility is a huge undertaking. There are many responsibilities that come with quadplexes– maintenance, management, tenant mediation – and all roads lead back to the owner.

Tenant issues & turnover – Rent makes up the majority of the income generated by quadplexes, but the possibility of having problematic tenants is very real. Moreover, great tenants can leave unexpectedly once the market allows them to move on to owning a single-family property.

Hands-on management – Management companies are usually responsible for maintaining larger residential properties. You can hire a property manager to do that for your property but it comes with an expense, which is normally a percentage of the gross rent each month, which will eat into your operating profits. That means as an investor, if you want to save the property management expense it’s then your responsibility to manage all aspects of the property. With or without a property manager, the day-to-day expenses of maintenance and repair  fall on the landlord’s shoulders, and they can add up quickly. If you’re looking for a more passive property investment, a quadplex might not make the most sense unless you hire a property manager.

Low liquidity ­– Multiunit properties can’t just be sold with a snap of the fingers; the process of finding the right buyer and closing is time-intensive and can take months, and even then, you may not get the price you initially set. That is great as a buyer but can be problematic as a seller.

Owning a quadplex can be a fantastic investment opportunity, but it’s not one for every investor to take advantage of. You have to acknowledge the risk involved and must be willing to roll your sleeves up to be present and get work done. However, if the decision is made and you make it across the finish line, the benefits can be outstanding. If you’re interested in learning more about rental loan opportunities, contact Temple View today.